General Question

Aesthetic_Mess's avatar

What do you think about some states wanting their own currency?

Asked by Aesthetic_Mess (7887points) February 15th, 2011

if the dollar collapses?
This is the article.
Do you think it’s a good idea that should be passed?

Observing members: 0 Composing members: 0

42 Answers

blueiiznh's avatar

It will not happen. It just does not make sense to be part of the US and use a different currency than the US.
It would be like having Chuckie Cheese tokens and only being able to use them there.
Would the state make you get their currency to buy anything in the state?
It would be a deterent for commerce and travel for people to go out of state.
It simply does not make sense. Other than during war times have there been any valid reason to change or create a new reserve system.

thorninmud's avatar

I’m sure there are probably still boxes of these lying around. They could just paste Ron Paul’s picture over Jeff Davis’.

marinelife's avatar

It is the purview of the Federal government to make currency. To have individual states do it would be like breaking up the union.

LuckyGuy's avatar

Only banks, money handlers, and printing companies would benefit. Give them the power and they will gladly implement this “service” for you.

Tropical_Willie's avatar

Didn’t this happen 150 years ago?
What happens when you go to another state and pay cash for gas?
Would your bank’s debit card be valid in another state?

bunnygrl's avatar

I would say look across the pond and see the mess that the Euro is in. <shudder>

gorillapaws's avatar

This is just one example of how unintelligent conservatives can cause a lot of harm and waste a lot of time and resources playing with things they clearly don’t really understand. Anyone who’s had at least one week of Macroeconomics 101 would tell you this (or switching to the gold standard) is a horrible idea. It’s like a red-neck flipping switches randomly at the nuclear power plant to try to reduce his power bill, some things are best left to people who are smart enough to realize that the subject lies beyond their expertise, and should therefore either educate themselves, or defer to experts who know what they’re talking about.

john65pennington's avatar

As long as our Federal Government exists, there will always be federal currency to use in each state. It’s the law and federal law supercedes all other state laws.

It will never happen.

Look at California. If this state had its own currency, just think of the deeper debt it would be in. California is on the verge of bankruptcy. Who would come to the aid of California, if there were no federal currency?

tedd's avatar

This actually was the case at the founding of our country. Each state had its own currency. It was a gigantic mess. Its one of the reasons the founding fathers installed the one federal currency.

Seelix's avatar

I think it’s a ridiculous idea that would never fly. Just sayin’.

iamthemob's avatar

What are the problems with it, for those against it?

I’m not familiar, that’s why I’m asking – not because I really think it’s a great idea.

However, currency of any kind is based on faith. Since most of it is electronic at this point (unlike in the past), evidence of wealth is mostly in the banks. Technically, we could go and get our wealth in Yen to use here – it would be pointless, but we could. As long as the state tracks how much the person makes in dollars as well as the state currency, if the state currency ends up failing, they don’t have to “trade it in” to get the fed.

bkcunningham's avatar

The joint resolution, S.500, calls for a “study whether South Carolina should adopt currency to serve as an alternative to the currency distributed by the Federal Reserve system in the event of a major breakdown of the Federal Reserve system.”

It isn’t asking for currency to be used now. The resolution says: “in the event of a major breakdown of the Federal Reserve system.”

”...Whereas, in the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System, for which the State is not prepared, the state’s governmental finances and private economy will be thrown into chaos, with gravely detrimental effects upon the lives, health, and property of South Carolina’s citizens, and with consequences fatal to the preservation of good order throughout the State; and

“Whereas, South Carolina can avoid or at least mitigate many of the economic, social, and political shocks to be expected to arise from hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System only through the timely adoption of an alternative sound currency that the state’s government and citizens may employ without delay in the event of the destruction of the Federal Reserve System’s currency; and

“Whereas, ‘legal tender’ means a currency that must be accepted in payment of a debt denominated in United States dollars if the parties have not stipulated that some alternative currency is to be used as their medium of payment or are not otherwise required to use such alternative currency; and…”

You can read the proposed resolution youself:

http://www.scstatehouse.gov/sess119_2011-2012/bills/500.htm

wundayatta's avatar

It is pure idiocy. It can only be proposed by superstitious reductionists who have never taken an economics course in their lives or have flunked out of the ones they have taken.

@iamthemob, you are correct. All currencies are based on faith, and the economy of any state that switched to its own currency would tank, because no one would trust the money, even if there were deflation or hyperinflation in the country as a whole.

Of course, the legislation has no chance of going anywhere, so it is a symbolic gesture signifying a disappointment with the policies of the Fed. It is a fantasy of gaining more control over their individual lives at the expense of the poor. It is coded racism, because it is still true that a much higher percentage of blacks are poor when compared to whites. However, in absolute numbers, more whites are in poverty, and ideas could change when poor folks see what rich folks are doing to them.

Of course, we’ve been saying that for years, and still the general populace prefers to blame the expanding gap between the wealthy and the poor on some kind of global conspiracy, rather than on where it really belongs: their elected representatives.

IchtheosaurusRex's avatar

First off – if the U.S. dollar collapses, it’s going to take every other currency in the world with it. Either it:

1) Ain’t happening, or
2) If it does, states printing their own money isn’t going to mean anything. We’ll be fighting with knives and clubs over scraps of food by then.

I thus put it in the same category as birther bills and other nullification statutes:

Nuts. It’s a bunch of batshit crazy Republican legislators baring their bottoms at the funny man in the White House. I think they should pay for this ridiculous theater out of their own pockets, but the yokels who elected them are even dumber than they are.

iamthemob's avatar

What would be the problem if the South Carolina Dollar were backed by federal dollars as well as South Carolina “treasury” or some asset investments. Wouldn’t that mean that the currency were both more stable and meaningful in terms of the economy?

The problem that I see arising on that front is that South Carolina could start discriminating in terms of pricing favoring it’s dollar over the fed, effectively regulating interstate commerce. Would this be controlled for by ensuring that the exchange rate be based on the federal dollar value of any additional assets backing the S.C. dollar?

iamthemob's avatar

For more, I’ll note that there are more localized currency experiments as well.

wundayatta's avatar

@iamthemob Huh?

Why would the US back a state’s currency? What would be the point? Is it like minting all those state quarters? No, the SC currency would be US currency in your scenario. All that would be different is the look of the currency.

The rest of that made no sense at all to me, so I can’t say anything about it.

As to your “localized” currencies—those are for a different purpose entirely. They are designed to support the local economy, by only allowing the credits to be spent on local goods. National and international firms would not take the credits, and so the only place you can spend it is with local people who agree to honor it.

Sometimes those currencies set maximum labor rates, too. That’s nice for believers and people who are on the lower end of the wage scale generally, but it doesn’t really compete with the wider economy. It’s mostly a feel good thing, and not something that has a big effect on the local economy, I’d wager.

mattbrowne's avatar

@bunnygrl – The “euro mess” is a common misconception, greatly exaggerated by the media. Bad news sell better than good ones. In reality we have seen an “overspending mess” in Greece, Spain, Ireland and the United States” with people and companies and governments thinking they could actually spend more than what they earn or are able to earn whether it’s real estate or expensive new cars or expensive wars abroad.

To me some states wanting their own currencies is cheap polemics trying to please disgruntled voters. Same for people in some European countries dreaming about their old currencies as if this could prevent future financial crises like we saw in 2007 and 2008.

How about we use more common sense? Like that you actually need a good job to be able to afford a new house. Or like you actually need good tax revenues to afford to invade countries like Iraq.

iamthemob's avatar

@wundayatta – Fed backing of an SC dollar and linking it closely to the fed somehow would be an attempt to ensure that interstate discrimination wouldn’t result from the currency issue.

The assets used to back the SC dollar would be an attempt to also, however, give it a sense of value outside of the federal dollar. It’s sort of like returning to a gold standard, although a mixed one, for the SC dollar.

Let’s just say that the SC dollar would be backed by SC landholdings. So if they have land that would be valued objectively at $1B, they could issue $1B of SC dollars, and no more. Or, that land could leveraged somehow (I know we’re all still twitching about asset-backed derivatives…but they’re great things in reality), so that the issue would be more flexible, but less than a Fed ability to influence inflationary/deflationary pressures through interest rates.

Of course the localized currencies are for a different purpose – but should those concerns also be considered with something like this?

zenvelo's avatar

No one would want to sell anything to someone in S. Carolina unless they paid in US Dollars. The resolution’s premise behind why they would issue the currency would render the backing of the US treasury as meaningless.

Maybe they’ll secede again. This time we could say adios.

wundayatta's avatar

The backing of the hypothetical currency by the Fed is… hardly a believable scenario. What’s in it for the Fed? Backing by any tangible asset—say, land—is untenable. If the new currency has huge inflation, then what? Does the Fed come in and take over their land? It’s not a loan or something.

What the hell is the gold standard, anyway? There’s not enough gold in the world to back the US currency, much less world currencies. Gold prices would have to inflate drastically, and what would you have? You could trade currency for gold, but gold would be extremely unstable. Why anyone would make a bet like that, I don’t know.

I’m not sure, but I believe that historically, gold has been a poor investment. Sure, at times, it has swung up quickly, during times of economic troubles, but people abandon it when things start to get better. The last time we discussed this I found an analysis showing that when you adjust for inflation, gold is not anywhere near its highest price.

Currency is a symbol of trust. I don’t care if you use seashells, salt, wampum or gold, the only thing that makes it work is if people trust that it accurately reflects the relative value of stuff. When we find out people are messing with that relationship—such as when the mortgage lenders allowed people to pay too much for homes with no down payment or other stake in the home, the economy tanked because people were unsure of the real value of homes relative to everything else.

If we had a gold standard, nothing would have been different. There would be an equal level of mistrust. The only thing that would have given people more confidence is the idea that competent people were watching over the shoulders of these thieves, making sure they weren’t stealing. We didn’t have that. Things got out of hand and people stopped trusting that the currency was an accurate reflection of the relative value of stuff.

Your scenarios are somewhat fantastic, and therefore it is difficult to even play “what if” because it’s such an unlikely what-if. It’s hard to see what you are getting at.

iamthemob's avatar

@wundayatta – You’re sort of reversing the direction of the “backing” here, but that’s mostly because I’m working through this conceptually and so locking down how I want to use the terms progressively.

The concept that I’m getting at with the fed dollar “backing” is trying to find the compromise between a complete disconnect between currency and value (like there is now) and the gold standard (which simply enabled, theoretically, for anyone holding x amount of the currency to return it for y amount of gold). It’s more like a legal fiction where the immediate issue is backed by the amount of Fed dollars equal to the SC dollars issue, and thereafter it’s more like an exchange rate.

Back in the gold standard day, currency could be considered a lot like owning shares in the nations gold holdings. When you say gold is a bad investment, therefore, it’s based on an understanding that it’s bad really because it’s a fairly stable value in the market. The price doesn’t really fall – in the modern economy, it kind of just sits there “until there is a shock”::http://www.goldprice.org/ and then it rises.

Gold is not a good investment because people have a good idea of it’s intrinsic value (at least nominally). Sure, it’s all relative. But you know – some things are more relative than others. ;-)

Let’s look at it this way though – if we issue currency against a limited resource, we are limited in how much we can say the currency can be redeemed for – but not how much currency we can put into the economy. So, the currency currently issued would be of an “objective value” of sorts. So, instead of creating an inflationary effect by issuing securities and printing currency for the securities, the securities would be the currency itself. so, as it collected different amounts of it, it could reissue smaller denominations. I have no idea what the effect of that would be – but the point is that, in the example above, $1B would be all the SC dollars there ever were – whereas it may be that as the value of land changes in relation to fed dollars, that $1B represents percentage ownership in land assets, such that when the land increases in value in terms of fed dollars, the SC dollar increases in value in relation to the fed.

Simple example, and not that I think it would work, but the idea is to see how this might be actually worthwhile – if we’re just issuing state currency, how would it not be linked to fed inflation or deflation – it seems like it would be, as you mentioned, simply printing diffeerent looking money.

Nullo's avatar

I think that it’s amusing. Intriguing, like the first hoodie that I ever saw. Might even be a good idea.
I like that these states are standing up for themselves – they are not called ‘states’ for no reason. I like that it’s very probably making a number of politicians uncomfortable.
I am a little worried about the overall constitutionality of it; I seem to recall that currency was Congress’ department, but that just might have been referring to the creation of money for the United States.

bunnygrl's avatar

@mattbrowne I agree entirely, GA. We just borrowed £7billion to loan to Ireland as part of a rescue package they didn’t want but was foisted on them anyway, while the mp’s expenses nonsense is still going on, and so, so so, many others areas where we, as a country, are just bleeding money. It’s ridiculous. My Grandmother said to me years ago, “these days, if kids don’t have £100 trainers, or their parents don’t have the latest car, they think they’re poor, when I was young, sometimes we went to bed hungry. People don’t know what poor is.” and she was right. I work on a checkout and was really angry one evening when a young (early/mid 20’s) girl’s shop consisted of 4 of those 4 pack bottles of WKD (vodka mix drink) and a tin of baby milk powder (formula) and when I totalled her bill she said she didn’t have enough with her just to take the milk off. I said to her “you’re kidding me?” but no, she wasn’t. Honestly, I wanted to scream, but instead I just had to do it on the inside. Folk seem to need a lesson in what’s important, not the latest trainers, or having a nicer car than the neighbours, (or invading a country to keep in with your buddy, thanks Blair). I just think that it sucks that we are bailing out the Euro when we did not join, and yes, we are a part of Europe but most of us haven’t had a say on that either. Unless anyone was old enough to vote in 1973, when we joined the wretched thing, then they haven’t had a vote on it, and thats most of us.

Supacase's avatar

I’m not sure I completely understand this, but the way I see it, either state money would have to equal the amount of federal money (so what is the point?) or state-to-state conversion would be a mess.

wundayatta's avatar

@iamthemob “complete disconnect between currency and value (like there is now) ”

I see. That’s why your scenarios seem to nonsensical to me. I can’t agree with this premise.

iamthemob's avatar

@wundayatta – what don’t you agree with?

ETpro's avatar

I think all the talk of nullification, secession, state currencies, state immigration laws and the like is dangerous psycho-talk politics at its worst.

Nullo's avatar

@ETpro It’s just a good stretch after a nap, or a bout of indigestion; it’ll pass, and we’ll hopefully be better off for having had it. If it’s psycho-talk politics that you want, go poking around over on the fringes.
Art Bell is/was particularly entertaining.

ETpro's avatar

@Nullo Thanks. I hope you are right. The American Civil War was by far the bloodiest conflict this nation has ever fought. The very idea that a repeat of that is a good thing staggers my mid, and shows how far some are willing to go to impose their will on the majority.

Can’t say as I ever listened to Art Bell but looking him up, he sounds like an interesting character.

wundayatta's avatar

@iamthemob I meant exactly what I said. To repeat: I do not agree that there is a complete disconnect between currency and value. I think the US currencies has one of the more accurate connections to value.

I don’t know how to say it any clearer.

iamthemob's avatar

@wundayatta – Ahh, then I disagree. Money is made of paper and therefore one marked 100 shouldn’t be worth more than one marked 1…

Tropical_Willie's avatar

@iamthemob You have ONE credit and therefore it’s worth ONE not 100 or 1000.

Nullo's avatar

@Tropical_Willie You’d have to re-evaluate such a currency every so often or you’ll be throwing around thousand-credit coins before the century is out.

@ETpro Who are you, and what have you done with the real ETpro?

ETpro's avatar

@iamthemob How much is an ounce of gold worth if you are stranded on a desert island with no way to contact other humanity and no ability to find food? Is it worth more than a paper dollar, or a penny? All money takes its value for the percentage of the goods and services its issuing country produces.

Nullo's avatar

@ETpro That sounds uncomfortably like the State owning its citizens. Goods and services are created and provided and exported by private individuals and their companies, after all, whereas currency is issued by the government.
Bah. I need an Economics refresher course.

ETpro's avatar

@Nullo If you really wish to move to Somaila where you can buy things with busshels of grain, ammunition, or AK-47s, be my guest. Most of the developed world prefers the convenience of a faux currency pegged to the value of the nations GDP. It simply makes exchange much simpler than bartering chickens. Of course, you could wait for the development of the hen modem and PayPal allowing you to electronically transfer chickens to your dentist or doctor. This development may take a while though.

wundayatta's avatar

@iamthemob The value of money has nothing to do with the paper it is printed on. It’s like a story having nothing to do with the paper it’s printed on. The story and the value still are the same whether you print them on paper, tree bark or gold.

iamthemob's avatar

@wundayatta – so how is the dollar more connected to value now as opposed to when it was connected to a particular amount of gold?

gorillapaws's avatar

@iamthemob the value of the dollar is determined by supply and demand. If the stock market is doing well, then foreigners want to exchange their currency to get dollars so they can buy stocks, which increases demand and thus the value of the dollar. As the value of the dollar goes up, prices of US goods and services get more expensive abroad which slows the economy. Then people then want fewer stocks because US corps are generating less profit, the dollar goes down in price and sales abroad go back up, stocks grow, dollar goes back up. This process results in an equilibrium that is a reasonable value for the dollar at any given time and @wundayatta is correct in saying that this valuation is very accurate.

Thought experiment: imagine if we had 50 separate currencies working this way, and then a state like Louisiana has a major crisis like the B.P. oil spill. Think about how much worse the impact would be on their state.

blueiiznh's avatar

@iamthemob having it be like some sort of gold standard would mean failure before it began. The gold standard was eliminated in the US in 1971. Many countries tied their currency to the US Dollar. The US had tied their dollar in the 1930’s to a single unchanging level of an ounce of gold being about $35. Real world of economics outpaced this system as the U.S. dollar suffered while other currencies became more valuable and more stable.
The US took away the gold standard altogether in 1971 when other countries reduced their reserves and traded them for gold, thus creating a system breakdown.
@wundayatta is correct in the valuation based on trust and the trade of goods and services and does reflect a more realistic rate than the archaic gold standard measure.

wundayatta's avatar

Interesting question. Did I say that? Nope, I don’t recall ever saying that paper is more connected to value than gold, although that is probably the case.

Ideally, you want a currency that facilitates rapid response to change in the amount of valuable stuff, as well the value of that stuff today compared to other days in the past.

What money does is to help us establish an arbitrary, but standard way of valuing everything humans do and make. If you hold the money supply constant, then, when we make more stuff, there are fewer dollars chasing more stuff. This is deflation, and it is bad because once it starts, people stop buying stuff, because if they wait a little bit more, their dollars will be worth more. So if you freeze the money supply, you create deflation which stops the economy in its tracks.

It is the job of the Fed to keep an eye on how the economy is going, and to add currency in order to keep the value of the dollar almost constant. They need to put in a little more money—enough to create an inflation rate of around 3%. This is enough to encourage people to spend money now, before their dollars decline too much, but not to freak out because inflations is too high, and they can’t afford to buy anything or borrow or whatever.

When there is too much stuff per dollar, deflation starts. The antidote to deflation is to pump more dollars into circulation in order to get people to buy more stuff. This is what they have been doing in order to get the economy moving out of this recession. But conservatives are uneasy because they think too much money is going into the economy, which will result in too much inflation, once people catch on there’s money to spend.

The Fed’s job, as I said, is to balance these things, and to keep inflation at 2–3%. Right now it’s at 1%, and thus the Fed is still pumping more money into the system. So inflation hawks are freaking out. There’s another reason why they freak, and that is because of the deficit. The deficit is another way of pumping money into the system. So the Fed has to keep a close eye on deficit spending, so they don’t overdo it with the money supply.

Now here’s the problem when you use a finite substance as a symbol of value. Since there is a finite amount, it stays constant, while we make more stuff. As I said before, this causes deflation, which stops the economy in its track, because people won’t spend, when they know their gold will be worth 10% more tomorrow. And there’s no way around this problem, because we can’t be alchemists and make gold out of sulfur and tin—or whatever.

That’s why we have ended up with paper, and really, it’s hardly paper any more. It’s mostly electrons crossing the internet. I think paper money represents only a very tiny portion of the value of all stuff. Soon, we’ll dispense with paper entirely, and the only thing we will see is numbers on our cell phones that symbolize what we are worth. There won’t even be credit cards any more. Just phones with retina recognition, possibly doubled with fingerprints.

Because the most important thing in the economy is confidence. We have to believe that every “dollar” or value unit is honestly earned. It hasn’t been faked or hacked or made through fraud (such as telling people a house is worth more than it really is). If people have confidence, they will use the dollar and trust it.

This is why people all over the world prefer the dollar to their own currencies. It is a trustworthy value metaphor. If your hypothetical South Carolina created its own currency, it would go nowhere because no one would trust it, and everyone would use dollars.

During this last recession, there was some increase in distrust for the dollar, and people started trying to use the Euro as a standard currency. But, of course, it turns out that Europe has even more credit challenged nations that the problems in the US reflect, and so it turned out that the dollar still is the strongest currency in the world. I.e., people place more trust in it than any other currency.

If we go to the gold standard, we’ll kill our economy. Stop it dead in its tracks. Our only sensible choice is to move forward to the world of digital currency.

Of course, for currency to work, you also have to trust the bank whose job it is to pump in money, as necessary, in order to keep the relationship between currency and value in the right balance. The problem with this is that it means the Fed has an awful lot of power. Many people are quite uneasy with this—both because they think the fed will make the wrong decisions, but also because they think the Fed is somehow stealing from the people, and funneling money to the oligarchs.

They ask, where are the checks and balances for the Fed? Why can’t there be competition for the Fed to keep it honest? Or why do we even need the Fed at all? We don’t. Let’s go to the gold standard which is something we understand.

I think there are very few people in the world who understand the role of the Fed. All of them have come from the banking industry or from the field of academic economics. Everyone else (including me) thinks they understand, and I probably understand more than most, but there is still a lot of things I don’t understand.

Congress and the POTUS are supposed to keep an eye on the Fed. The POTUS can change the Chairman of the Fed if he or she wants. I think Congress can approve or not the President’s appointments to the Fed board. There are probably a bunch of eggheads and people on Wall Street who keep a close eye on the Fed, too.

So there probably are reasonable checks and balances, but Joe the plumber won’t see that. It’s way to arcane and it is a world filled with the high and mighty, and the Joe’s of the world don’t trust them even as far as they can throw them. So people want gold. Something tangible. Something they think they understand. And who can blame them? It’s awfully complicated.

Most people don’t know what money is. It’s a metaphor, and people don’t get metaphors. They think money is something real. It’s not. It’s just an idea. It’s just virtual reality. That makes people really nervous, ‘cause no one knows what is going on in the virtual world. Probably half the people think a computer virus could transfer into a human being.

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